‘Real business’ is focus of the next round of concentration

National Bank of Greece Governor Theodoros Karatzas emphasized recently that one of the top priorities for Greek enterprises in the current period is the return on investment for shareholders. This brings to the fore the crucial issue of firms’ expansion moves through mergers and acquisitions. Banks are usually called in to support such moves and Karatzas’s statement contains an implicit criticism of the largely indiscriminate drive for greater size that was evident during the stock market euphoria three to four years ago. It is also indicative of a differentiated stance on the part of a large part of the banking community, which favors funding support for for entrepreneurial investment moves based on the potential for «real business,» which can yield real profits – as opposed to capital gains – for shareholders. The view affects the attitude of banks vis-a-vis the trends expected to emerge as a result of the lifting of restrictions on personal and consumer lending as of July 1. Instead of focusing, as in the past, their attention on mergers and acquisitions, they are seeking to promote the creation of «repeat» profits, that is, those resulting from core activities, 70 percent of which is retail banking. Most senior bankers today say they are not considering the possibility of a new round of acquisitions and mergers in the sector, but are focusing their attention on the sectors of banking activity which, in a new phase of market concentration and realignment, could be sources of more revenue for their coffers. Such an attitude would seem to exclude an «old-fashioned» acquisition of a bank but not of a network with efficient technological applications for personalized banking services, or of other specialized service companies in the periphery of core banking activity. After 2004 It seems that the time of the next necessary phase of concentration in the Greek banking sector has not yet arrived. Most of those with some inside knowledge take the view that this next phase will start after the end of the Athens Olympic Games next year. This, of course, does not mean that preparations have not already started: The lifting of restrictions on consumer lending offers the perfect opportunity that big banks had been seeking to implement some of the plans they kept in their drawers. It allows, for instance, fertile ground for challenging the dominance of large retail chains (electrical appliances, hi-fi systems, computers) in hire purchase, as banks will now be able to offer their customers better installment terms for such purchases than the retailers themselves. Indeed, many bankers argue that this qualitative change will necessarily bring about a change in course for listed commercial enterprises and will set them off on a search for new revenue sources via reorientation of their activities. The abolition of lending restrictions and the ability by big banks, mostly, to now promote the so-called cross-sales, or mixture, of banking and insurance products will gradually lead to to the maturation of an older idea for the full incorporation of insurance companies, most of which are either controlled by or affiliated to banks. This prospect will become more evident in the next few months when the banks will seek to further trim the operating cost channels through which the promotion and sale of insurance policies is effected today. The food industry Dimitris Daskalopoulos, who heads the Delta Holdings dairy group, is also a believer in the return-to-real-business approach. «No economy can grow if it is based merely, or to a large degree, on financial products, on speculation and opportunistic embrace of business proposals, without reference to a long-term prospects and productive investment,» he says. The Delta Holdings group, with a dominant position in market segments like ice cream, and an extensive presence in neighboring Balkan countries where profit margins are better than the domestic market’s, is pursuing a policy of strategic alliances that will add value to its core activity. The group is certain to follow the same philosophy in the new phase of restructuring and concentration that is projected for the foodstuffs sector pretty soon, where it will seek to incorporate and consolidate similar productive and commercial enterprises with established names in the market. The foodsfuffs sector still presents opportunities for concentration, either in the form of purely productive enterprises, like Papadopoulos biscuits or the Ion chocolate industry, that did not give in to the sirens of the bourse, or in the form of listed fast-food chains like Everest or Grigoris that have to face the competition of a highly fragmented market segment. Aggressive buyouts But if in such sectors the aims are the promotion of strategic alliances and stable partnerships, in others, like coastal shipping, fish-farming or even construction, the interested banks appear to favor aggressive buyouts with the assumption of management by specialized professionals who will enjoy the confidence of foreign institutional investors who are the main funders of such acquisitions. The idea of professional managers at several listed companies with a broad dispersion of shares as a basic precondition for the promotion of a buyout is directly related to the inability of their present managers to show a minimum performance in the implementation of restructuring programs for which they have already been funded by the banks. This kind of acquisition will not be late in coming because the prospective buyers do not understand the notion of the so-called political cost, even if this concerns electoral regions that are crucial for the ruling party, such as in Crete…

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